Book of the week: Finding quality in the stock market

Book review: Quality InvestingQuality Investing is an informative book that provides investors with plenty of food for thought.

894-Quality-Investing-100

Published by Harriman House, £35

Buy at Amazon

Some types of investing attract more attention from publishers than others. If you want to hear about the latest charting techniques then you're spoilt for choice. There are also several good books on value and income investing. However, there are surprisingly few books about the qualitative (as opposed to quantitative or technical) factors that investors should look for when searching for a company that they can buy and hold. Quality Investing aims to fill this gap.

The book begins with the basics of what to look for when searching for quality companies, especially the importance of choosing firms that have a good return on capital and a strategy for dealing with competition. Next, it moves on to what the authors call the "patterns" that successful companies follow. The third section deals with what can go wrong with companies and stop them being successful. The final part looks at the mechanics of long-term growth investing, including valuation, timing and learning from your mistakes. More than 20 case studies, each with their own lesson, are scattered throughout.

Cunningham has made his reputation through his books about Warren Buffett, who has followed a similar strategy for the past 40 years, while Eide and Hargreaves both run portfolios at the successful hedge fund AKO Capital.

All three authors therefore speak from a position of authority. They are also able to explain complicated business concepts in a way that ordinary investors can understand, and have a knack for memorable phrases. For example, companies that gradually and imperceptibly decline into mediocrity as "boiling frogs", while investors who place too much hope on a new product or corporate restructuring are guilty of "next-Monday optimism".

Given that the authors cram a huge amount of material into less than 200 pages, it's not surprising that there are times when you wish they had provided just a bit more detail. It would have been interesting to hear more about "endowment bias" the tendency for investors to fall in love with an investment and refuse to sell, even when the company has passed its peak. And for a book that started as an internal project about AKO's investment process, there is surprisingly little detail about its investments in the companies mentioned.

However, despite these minor shortcomings, Quality Investing is an informative book that justifies its £35 cover price, and which provides investors with plenty of food for thought. If you read this book in conjunction with Picking Quality Shares by MoneyWeek contributor Phil Oakley, which focuses more on reading balance-sheets, you will end up with a well-rounded view of growth investing.

Recommended

Theatre review: The Visit
Films

Theatre review: The Visit

Friedrich Dürrenmatt's Swiss classic The Visit, transported to 1950s America, poses the question: how much would you kill for?
28 Feb 2020
Six contrarian books for Christmas
Films

Six contrarian books for Christmas

Merryn Somerset Webb picks six of her favourite contrarian books to help you look clever and perhaps win a few arguments over the Christmas dinner tab…
9 Dec 2019
Four excellent books to get your teeth into while you remain holed up
Books

Four excellent books to get your teeth into while you remain holed up

Whether you’re going on a staycation (or even an actual holiday) or remaining holed up at home. Merryn Somerset Webb has four perfect books to educate…
6 Jul 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Don’t miss this bus: take a bet on National Express
Trading

Don’t miss this bus: take a bet on National Express

Bus operator National Express is cheap, robust and ideally placed to ride the recovery. Matthew Partridge explains how traders can play it.
19 Oct 2020
Three stocks that can cope with Covid-19
Share tips

Three stocks that can cope with Covid-19

Professional investor Zehrid Osmani of the Martin Currie Global Portfolio Trust, picks three stocks that he thinks should be able to weather the coron…
12 Oct 2020